Tax amnesty based on proposals of body set up by SC

ISLAMABAD: The amnesty scheme recently announced by the government is based on the recommendations given by the high-level official committee, which was constituted by the Chief Justice of Pakistan and comprising top officials of the SBP, SECP, NAB, IB, FIA, FBR and ministries of Finance and Foreign Affairs on the issue of tracing and bringing back Pakistanis’ wealth held abroad.

In its report submitted before the Supreme Court in the suo motu case on the subject, the committee unanimously concluded that the present environment is “most conducive for a voluntary disclosure scheme to Pakistani citizens to declare and repatriate their assets held abroad”.

The committee also recommended that the existing and prospective measures to trace foreign assets of Pakistani citizens like OECD (Organisation for Economic Co-operation and Development) multilateral conventions should be widely publicised to convince citizens that if foreign assets are not declared through this one-time window opportunity, there is high probability that those assets will be traced exposing such persons to huge penalties and prosecution.

The committee also suggested the establishment of a national databank of international assets under the FIA for which information would be sourced from the IB, ISI, MI, NAB, ANF, SBP, SECP and the FIA. The report envisages that for retrieval of these hidden assets, the relevant bilateral treaties/multilateral conventions and NCB-Interpol notices and bilateral Interpol requests can also be employed.

The committee, which submitted this report, was headed by Governor SBP Tariq Bajwa and comprised of members including Secretary Finance Arif Ahmed Khan, Chairman FBR Tariq Pasha, DG FIA Bashir Memon, Deputy Chairman NAB M Imtiaz Tajwar, Chairman SECP Zafar Abdullah, Special Secretary Foreign Ministry Shah M Jamal and Director IB Abdul Nasr Shuja.

In the formulation of the report, the committee consulted different stakeholders including Bashir Ali Muhammad of Gul Ahmed Textiles Mills Ltd, Arif Habib of Arif Habib Group, Dr Ikramul Haq from Huzaima and Ikram, Mehmood Mandviwalla and Ali Zafar from Mandviwalla and Zafar, Syed Shabbar Zaidi from AF Ferguson and Co, Syed Mazhar Ali Nasir from FPCCI, Siraj Kassan Teli and Abdul Basit from Karachi Chamber of Commerce and Industry, Malik Tahir Javaid from Lahore Chamber of Commerce and Industry, Asim Zaulfiqar and Rashid Ibrahim from AF Ferguson & Co, Masoodul Hassan Naqvi and Ashfaq Tola form Tax Reforms Commission.

According to the report, the committee though in principle did not support any amnesty for the tax evaders as it acts as discouragement for compliant taxpayers, it was also conscious of the fact that a purist approach may not yield the desired outcome in this case. It warned that an all-out and uncompromising drive to retrieve the untaxed funds stashed abroad may create a panic and compromise the economic recovery.

“Moreover, studies have shown that for a revenue-maximising government, a voluntary disclosure scheme can be useful as it provides a way to collect revenues without incurring high administrative costs for detecting and prosecuting tax evaders,” the report said.

The report revealed that in the recent years as many as 50 jurisdictions including developed as well as developing countries like US, Germany, Indonesia, India, Brazil etc. have incentivised their taxpayers to disclose and repatriate foreign assets by introducing voluntary disclosure schemes which offer lower tax rates and waiver of penalties in respect of disclosure and repatriation of foreign assets. The rate of tax/penalty, however, has varied from as low as 1 percent to as high as more than 50 percent.

“In the considered view of the committee, the arguments for voluntary disclosure scheme outweigh the arguments against the schemes,” the report said, adding that the schemes are desirable for the reasons that these: a)provide a way to collect revenues without incurring high administrative costs for detecting and prosecuting tax evaders; b) provide taxpayers an opportunity to regularise their tax affairs and disclose their concealed incomes and assets and thus promoting taxpayers to become complaint; and c) shifts black money from information sector into formal sector and increases revenue the long run.

Regarding the scope of the amnesty scheme, the report said all Pakistani citizens should be eligible to avail the scheme except for: a) foreign assets created through corruption by misusing the authority of a public office; and b) foreign assets created through criminal activities such as terrorist financing and narcotics.

The committee also recommended that public office holders or politically exposed persons and foreign assets created out of proceeds of crime should also be excluded from the scope of the amnesty scheme. Regarding the period of the scheme, the committee recommended that it may vary from three to nine months with lower rates of tax to be paid during the earlier period and higher in the later.

About the rates, the committee report says that it took input from leading lawyers, businessmen, chartered accountants and the members on the issue. The report said, “The rates proposed fell in the range of 2 percent to more than 10 percent. Moreover, it was recommended that lowest rate may be prescribed for liquid assets declared and repatriated into Pakistan since these assets would permanently contribute to Pakistan’s economy.”

The committee also recommended that the voluntary disclosure scheme be introduced through special law with an overriding provision over the National Accountability Ordinance 1999, Foreign Exchange Regulations Act 1947, Income Tax Ordinance 2001, Customs Act 1969, Prohibition of Benami Transactions Act 2017, Federal Investigation Agency Act 1974 and Companies Act 2017.

It also recommended that any person not availing the scheme in respect of any foreign asset, which the person was either required to disclose earlier or at his option under the scheme would be deemed to have committed an offence under Anti-Money Laundering Act 2010, if he/she has foreign assets of over $100,000.

On the issue of confidentiality, the committee suggested that the highest level of confidentiality standards would be provided in respect of information provided under the scheme.